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The Underage Pragmatist

The Narendra Modi government presented it’s third budget on 29th February 2016 with hopes riding high that it would finally deliver the ‘big-bang’reforms that have been keenly awaited ever since the BJP swept away the national elections in May 2014. Although the budget did not present any major reforms, it focused on fiscal discipline, resolving the banking crisis and rebooting the rural economy. In this post, I shall attempt to analyse how Budget 2016 impacts the economy at large, the private sector and ultimately, the ordinary taxpayer, along with a special emphasis on the international tax proposals therein.

Stabilizing the Economy

Before the budget, there were speculations whether the Finance Minister would stick to the fiscal deficit target of 3.9% or miss the same in order to increase spending. Experts agree that by maintaining the fiscal deficit target of 3.9%, the Finance Minister made the right move, giving way for a rate cut by the Reserve Bank of India. Also, one needs to appreciate the government’s efforts to deal with the Non-Performing Assets (NPA’s) crisis which has gripped the Public Sector Banks (PSB’s), in a systematic and practical manner.

The 22 PSB’s in the country have been riddled with bad debts cumulatively amounting to 3.5 Lakh Crore and have thus proved to be the most significant impediment to India’s economic growth. The government had promised recapitalization worth 70,000 crore across four years while raising the balance from the markets. Although the current budget only allocates 25000 crore for recapitalization, it provides a clear roadmap to solve the crisis in an incremental manner. It proposes a Bank Boards Bureau which would advise the government on how to tackle the NPA problem as well as suggesting deserving people to occupy board positions of the banks, thus addressing the endemic problem of such positions being captured by cronies of the politicians in power. It further provides that the government may even contemplate privatising some of these banks, thereby reducing the government’s stake below 50%. More importantly, a new bankruptcy code is in the pipeline which aims at simplifying the insolvency process and would play a significant role in liquidating of assets of the defaulting borrowers in an efficient and timely manner, thereby providing a major relief not just to PSB’s but other corporate lenders as well.

The Budget places a big thrust on reviving the rural economy which has been in distress at the back of two consecutive bad monsoons. It allocates 87,765 crore across infrastructure, irrigation and other welfare schemes to augment the suffering agricultural sector. It unveiled the path breaking initiative of a common online market for agricultural produce of the farmers which would help them fetch the highest price available therein, a complete break-from-the-past move aimed at increasing agricultural income. Also, the government plans to institutionalize direct benefit transfer (DBT) schemes for various subsidies, including fertilizers and LPG, which would not only lead to better governance by eliminating middlemen and reducing corruption, but would also result in significant cost savings for the exchequer.

Growth Incentives

The Budget promotes the government’s pet scheme ‘Make in India’ by providing a reduced corporate tax rate of 25% for manufacturing companies incorporated after April 1st, 2016 and reduces the corporate tax rate to 29% from 30% for companies with a turnover less than 5 crore. It also promotes another government scheme ‘Start-Up India’ by exempting 100% of profits for start-ups set up during April 2016 – March 2019.

However, it provides for further 10% tax on dividends in excess of 10 lakh, aside from the dividend distribution tax (DDT) already paid by the companies, a major flop in the budget, which would result in double-taxation. The Budget further provides for an increase in taxes on people earning more than 1 crore by 3%, both amplifying the government’s intention of taxing the rich going forward. The above proposals have evoked mixed reactions from India Inc, with some expressing their discontent over the benefit of the reduced tax rate not being passed to the companies already in operation, while start-ups complaining that they expected a lot more from the government.

Middle Class Concerns

This budget provides a lot to smile about to BJP’s core vote base i.e. the ‘neo-middle class’ by providing a significant increase in rebates for low income individuals, first-time home buyers and rent-payers. But it balances that out by imposing additional tax on the purchase of cars and attempts to pluck the cash economy by imposing an additional tax of 1% on cash purchases of goods and services valuing more than 2 lakh. The Budget further increases the overall service tax rate by 0.5%, thus preparing the country for a higher tax rate under the Goods and Services Tax Bill which aims at unifying all the indirect taxes currently imposed in the country.

International Taxation

The Finance Minister reiterated the government’s commitment to adopt the Base Erosion Profit Shifting (BEPS) provisions which were presented at the G20 summit in late 2015. He adopted BEPS Action Plan 13 of Country-by-Country (CbC) reporting as well as imposing a tax on digital transactions in line with BEPS Action Plan 1 at the same time. But the corporate sector has something to cheer for with the announcement of the Patent Box Regime in line with BEPS Action Plan 5 which aims at providing the underlying tax benefit to those companies which are able to prove the ‘nexus’ between qualifying expenditure for developing intangible property (IP) and income received from those IP assets, signalling the government’s vision to turn India into an R&D hub. But at the same time, he announced that the government would adopt the ‘Place of Effective Management (POEM)’ residence test as well as General Anti Avoidance Rules (GAAR) from fiscal year 2017-18, preparing the MNE’s for a strict administrative road ahead.

Conclusively, I think Mr. Arun Jaitley, the Finance Minister has presented a pragmatic, forward-looking budget which might appear short on reforms, but provides a sensible road-map to transform the world’s fastest growing democracy. The key, however, lies in implementation, especially with regards to the resurrection of the rural economy and a hassle-free, responsive & efficient administrative system across all sectors. It is with desire that the country rallied behind the BJP in the May 2014 elections and one can hope that the government delivers on its promises.

With the backdrop of the Rohith Vermula Suicide in Hyderabad and the JNU crisis, political cynics expected that the Budget Session 2016 of the Parliament was heading for another washout. But, if the first three days of its functioning is considered reflective, then it can be said that it is this session where the sheer magnitude of differences between our political parties and in a sense, the people they represent, was truly on display. In this post, I give a quick summary of the first three days of the ongoing parliament session.

The stage was set was another round of meaningless demonstrations and benign accusations by the opposition on the ruling Bhartiya Janata Party(BJP), given their mishandling of the JNU crisis and the suicide of a Dalit scholar in Hyderabad, purportedly at the behest of two union ministers. But thanks to explosive revelations by our feisty HRD minister, Smriti Irani; fiery speeches by the likes of Arun Jaitley & Anurag Thakur and some reports in the press, the BJP has managed to divert the attention from the agrarian crisis or the troubled Public Sector Banks and put the ball in Congress’s court to defend their support for the unruly students at JNU or their distortion of a report in the case of Ishrat Jahan, a woman who was killed in an alleged fake encounter in Gujarat back in 2004 but has now been confirmed as a terrorist who was sent to assassinate Narendra Modi, then the Chief Minister of Gujarat.

The Congress party sought to attack the BJP on the arrest and subsequent sedition charge of Kanhaiya Kumar, initiated by the speech of Jyotiraditya Scindia, a Congress MP, which frankly sounded like a collection of angry tweets by a loony liberal, echoing the same half-literate rants which dominate our media and intellectual space. He said that the BJP was trying to impose the Hindutva ideology on the country and how freedom of speech should be unrestricted, even if it celebrates a convicted terrorist. His speech was immediately rebutted by Anurag Thakur, a BJP MP, who attacked on Rahul Gandhi for supporting the students raising the anti-national slogans raised in the JNU campus and how the Congress resorted to political opportunism without understanding the seriousness of the issue. After a round of political blame games, it was the speech by Smriti Irani which exposed the bigotry and absurdity that grips the JNU Campus.

She inundated, with damning evidence, that in the garb of free speech, how students at JNU constantly celebrate the Maoists who vow for the destruction of India and the killings of Indian soldiers who lose their lives defending them, apart from their not-so-subtle demonstration demanding Kashmir’s succession from the Indian state on the much controversial night of February 9th, 2015. She also presented evidence on how the Congress party sanctioned school curriculums which had a clear prejudice against the Hindus, leaving our eminent parliamentarians completely speechless. On the next day, she continued her attack on the opposition, presenting evidence that Rohith Vermula was in fact not even a Dalit, confirmed here by the Telengana Police. She asserted that the political elite in the country had reduced him merely to a caste and exposed the irony that it was that very problem of being labelled as caste which drove him to commit suicide, as expressed by himself in his suicide note.

Due to her, it can be said that the BJP has managed to at least put forth a formidable defence against the controversies which have rattled the party in the last couple of months. Never has been the Left hegemony of Indian politics such fiercely challenged.

That being said, the troubles for BJP are far from over. They still do not have a majority in the upper house of parliament and the opposition is bent upon stalling important legislation, no matter what concessions BJP makes. The Prime Minister’s silence on key national controversies doesn’t help their cause either. If he is indeed serious about legislative business being conducted, he needs to shred his hatred for the Delhi media or their political patrons and lead from the front, tackling every issue heads on, just like the way his HRD minister has been doing for the past three days.

Also, the ruling party is clearly in the driving seat after a far-sighted Railway Budget was presented by Suresh Prabhu and a sobering yet optimistic Economic Survey was presented in the parliament by the Finance Minister, Arun Jaitley. If the government capitalizes on the work of the past two years by presenting a strong, innovative yet practical budget, it will silence all its critics and retain its glory, which some say has been fading at the back of declining exports, debt ridden Public Sector Banks and falling stock prices, thus bringing back the focus on investment and growth.

As of Friday(26th Feburary), the BJP has steered itself out of controversy but the real challenge would only be addressed on the 29th, when the Budget is presented in parliament. India is keenly waiting.

During the campaign phase of the 2014 Lok Sabha Polls, which resulted in a historic mandate to Narendra Modi, many of his critics worried that, as Prime Minister, he would irrevocably polarize the country, on the same lines as he did in Gujarat. Two years hence, their predictions have come true, albeit partially. While the relations between Hindus and Muslims remain as sensitive as ever–they haven’t worsened as the critics predicted–, it is the distance between the Nationalist Right and the Intellectual Left which has constantly widened ever since he was elected to office. Nowhere has this been more exposed than in the events of the preceding week on the campus of Jawaharlal Nehru University in New Delhi.

A few days back, a group of student activists organised an event to protest against the “judicial hanging” of Afzhal Guru, who was convicted and later hanged by the Supreme Court over his role in the attacks on the Indian Parliament which took place in 2001. After the event, videos emerged which showed some protesters calling out for India’s destruction during the rally. One might think this was just a benign attempt by an over-excited 20 year old to provoke university officials, but, over the last three days, the JNU Campus has turned into nothing short of a Stalingrad between the right-wing BJP government at the center and everybody in the opposition, alongside the Left leaning intellectuals in the university as well as in the media.

ABVP, the student wing of the BJP, termed the protesters as ‘anti-national’ for celebrating a convicted terrorist, while the protesters claim that the event was just another manifestation of the ‘anti-establishment’ culture, quite mainstream on the JNU campus.

The conflict really intensified when the JNU Students Union President, Kanhaiya Kumar, who organised the protest was arrested and charged with sedition by the Delhi Police. The scuffle at the Patiala House Court, where the accused JNUSU President was to be produced, led to an all-out fight between the Left-Wing and the Right-Wing fractions of our political system. The Left asserts that the Modi government is trying to micro-manage the central universities by stifling dissent, while the Right claims that those raising ‘seditious’ slogans in the name of dissent would not be spared. It is hard not to draw parallels between JNU and the case of Rohith Vemula, a Dalit scholar at the University of Hyderabad who committed suicide after the University suspended him, allegedly due to the pressure of the Union governement, for condemning the execution of Yakub Memon, another convicted terrorist, or with that of FTII Pune, where the Union Government is accused of appointing a director with, shall we say, questionable credentials.

While the center had to lose face in the case of Rohith or FTII but the JNU row has managed to polarize the country like never before. Now, we have one side avowedly supporting Modi and all his policies, but at the same time, we have the other side who are ready to cross any possible line to defame his government. It is clear that, as we progress forward, one would most likely be forced to pick a side. It is up to every individual to decide which side he/she wants to defend.

As far as I am concerned, I find myself leaning to the right.To be clear, I am no bigoted patriot and an extremely strong proponent of unrestricted freedom of speech, but, if reports are to be trusted, even I find it hard to defend the provocations by some of students present at the JNU event. What happened at the Patiala House Court was appalling, without a doubt, but playing the ‘victim card’ after provoking the state to take action has been a marked characteristic of the Left Circuit in India. The truth remains that the reason university conflicts dominate the news is because the opposition does not miss to seize any opportunity to divert attention from the policies undertaken by the Modi government. What they really should be worried about, is the drop in agricultural productivity after two consecutive bad monsoons or the eminent banking crisis in the Public Sector Banks or the decline in exports after the fall in oil prices. But that seems to be the least of their concerns. All they are trying to do is find an excuse to further stall the parliament in the next session. Although I am no psephologist, but one can easily conclude that the 2019 Elections are not going to be won on an ‘Anti-BJP’ campaign or a ‘Free Speech’ campaign and definitely not on an ‘Anti-National’campaign. This would prove to be grave miscalculation on the part of Rahul Gandhi or Sitaram Yechury.

I know that as soon as one reads the above paragraph, I would be dismissed as a ‘bhakt’ or a ‘sanghi’. And there lies the problem with India. Anyone criticizing Modi is deemed ‘anti-India’ by the right and anyone supporting Modi is deemed ‘pro-RSS’ by the left.

It is clear that the age of discussion is over and the age of confrontation has begun. My advice? Well, sit back and enjoy.

An important discussion on the need for change in the prevailing parliamentary system of government is slowly gaining prominence in India. This is particularly important in the current political discourse, which is witnessing the opposition continuously blocking important legislation in the upper house, where the ruling BJP lacks majority. Now, it is the responsibility of the media to keep the debate well and alive in the mainstream, because, only a set of reforms in the system of government would usher in the transformative change which they wish to see in the Indian democracy.

The issue was first raised by Jay Panda, an elected MP from Orissa, who got slapped with a breach of privilege notice from prominent members of the upper house, a move which clearly iterated just how insecure they all are about the powers that they possess. Mr. Panda, in his article in a daily newspaper, had called for reforms in the upper house of parliament, which has turned into nothing but a way for nominated, unelected members to assert their political will. He suggested that the Rajya Sabha, must either be a democratically elected body or the powers vested in it must be systematically reduced. In my opinion, the former is a bad idea because a country which is perpetually in election mode, does not need another round of polls to deal with. Moreover, the current members are as it is nominated by state legislatures and given the sheer diversity of the Indian electorate, it is unlikely that a Rajya Sabha election would change the prevailing status quo. Thus, reducing its powers seems like a viable option.

At a book launch on the very topic, Dr. Shashi Tharoor, Lok Sabha MP from Kerala, suggested that India should adopt the presidential system of government, wherein the executive is separate from the legislative branch of government. The most prominent argument given for adopting the presidential system is that of United States, which became a dominant world power with such a system. However, one must realize that United States is a two-party state with both of these two parties, Democrat & Republican, having a sufficient degree of internal democracy, something we can’t say Indian political parties, leaving aside the BJP and the Left Front. Also, it is unlikely that one party would continue to hold majority in the lower house – the BJP does now – given the increasingly different electoral choices of the Indian people and having a weak coalition with a distant executive is nothing but a recipe for disaster. In any case, the ongoing political gridlock in Washington is testament to the fact the presidential form of government faces difficulties similar to the ones faced by India. Thus, in my opinion, the parliamentary system must continue, albeit with a much less powerful upper house.

Whatever the ultimate decision may be, the underlying issue is that the current system needs fixing and we must rejoice that the discussion has at least begun on the same. However, as often happens in India, important debates usually lose momentum to make way for benign issues which keep dominating the news for no apparent reason. One can only hope that this particular issue finds it way in the prime-time discussions on news channels and someday we might see a consensus being built around the same.

I write this article, knowing that such debates are unlikely to become mainstream in the foreseeable future but, with a sincere hope that someday, the Indian parliament would truly become the ‘Temple of Democracy’ it claims to be.

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The Maharashtra government recently passed a resolution allowing 180 days maternity leave to mothers having a baby through surrogacy, making it the first Indian state to do so. It has now set a precedent for other states and hopefully the centre, to follow in this respect. However, this resolution also tends to re-ignite the debate on the booming surrogacy business in India as well as rights of surrogate mothers, which emanated after the Central government banned foreigners from using surrogate mothers in India. As one can guess, this issue will be lost amidst all the noise on economic reforms and thus, I shall attempt to shed some light on this issue.

The Bombay high court ruled last year that women having babies through surrogacy are also entitled to maternity leave and while several courts have subsequently ordered leave in specific cases, the state government is the first to pass a resolution to that effect. The resolution comes in the backdrop of the Assisted Reproductive Technology (ART) bill ready to be tabled in parliament which aims at proper regulation and supervision of ART clinics and banks in the country to prevent misuse of the technology, including surrogacy, and for safe and ethical practice of these services. But, as it stands today, it bars foreign couples from using surrogacy services in India and shall only be permissible to Overseas Citizen of India (OCI), People of Indian Origin (PIO), Non Resident Indians (NRI) and any foreigner married to an Indian citizen.

The decision to ban foreign couples from using surrogacy services was taken in late 2015, in response to a Supreme Court verdict and amid claims by women’s rights groups about IVF clinics used as ‘baby factories’ for the rich and exploitation of women in ‘rent-a-womb’ clinics. The move represented the age old pathological distrust of enterprise by liberal groups in India and the tendency of Indian governments of appeasing their contentions, commonly with a complete ‘ban’, without analysing the issue at hand with the required depth it needs. The move didn’t just hurt the multi-billion dollar commercial surrogacy industry, but more importantly, it hurt the means of livelihood for the thousands of surrogate mothers, who usually come from the poorest districts of the country and are often forced to work as domestic help in absence of any other alternative. The surrogacy industry provided them with that alternative but women’s groups in India usually uphold their own perceptions about women’s rights and not of those who they claim to represent. It also robbed numerous foreign couples of the chance to have a baby through surrogacy without incurring the exorbitant costs of the same in most other countries which permit commercial surrogacy. Also, many of these couples have their embryos stored in various clinics throughout India who now face the risk and costs to export the same to such other locations.

Rather than asking for a complete ban, the women rights’ groups should have embraced the flourishing ‘surrogacy tourism’ business in India and instead campaigned for stricter licensing requirements, proper regulation, capacity building in clinics, minimum pay and proper living conditions for surrogates along with an efficient grievance council, possibly including representatives from one of the numerous women’s groups in the country. That being said, there is still time for damage control since the said ART bill hasn’t yet been passed and it is up to them to decide what it is that they stand for – ‘pro-choice’ for women or the silly rhethoric of ‘anti-capitalism’.

I hope that various other state governments follow Maharashtra in giving maternity leave to women having babies through surrogacy and at the same time, the ART bill is passed in parliament, BUT not without a few amendments.

Before one begins reading this blog, I would like to clarify that I am no expert on India- Pakistan relations and I write this entry only as a concerned citizen who firmly believes that the relations between the two countries can be far better than they have been in the past.

The last six months has seen tremendous movement with respect to India – Pakistan relations. We have had two terrorist attacks on Indian soil, suspectedly sponsored by the Pakistan military and ISI combined, but surprisingly, that hasn’t triggered a complete abandonment of engagement between the governments of the two countries. Maybe, both parties have come to terms with the fact that the Pakistan Military Establishment operates independently from the government and there is no point cutting ties with each other simply because some lunatic terror groups do not wish that to happen.

Although, the foreign secretary talks were cancelled previously, one saw renewed hope after the two NSA’s met in Thailand and after PM Modi’s spontaneous visit to Pakistan resulted in foreign secretary talks being scheduled again on January’15 2016. But after the recent Pathankhot attack, that too have been “mutually postponed”. One has to notice that both sides have refrained from using any strong rhetoric which would hamper the prospects of future engagement.

If they genuinely mean to only postpone the talks and not abandon it completely, I feel the talks should continue because, as I iterated above, there is no reason to abandon the talks merely because some small minded individuals don’t want the two countries to prosper. Besides, we are witnessing a never seen before embrace by the Pakistan government who have shown a keen interest in continuing the talks and are taking prompt actions against the groups who are suspected in carrying out the Pathankhot attacks. It would be incredibly incompetent of the Indian government to not pounce on this opportunity as fiercely as they can. Also, once the talks resume, we may see a focus on bilateral trade since the same has been a focus on Modi’s foreign policy and that might end up entrenching India’s relationship with Pakistan irrevocably. In conclusion, one can only hope that the initiative PM Modi took by making a surprise visit to Lahore does not end up being unfruitful but in fact helps forge a strong bond which has been long overdue.

The latest experiment by Delhi CM Arvind Kejriwal of allowing a car to ply only on alternate days has garnered mixed reactions from the general public and pollution monitoring agencies alike. Some say that the Odd-Even formula has been a massive success and would go a long way in curbing pollution in the city, while others have dismissed it as yet another naive move by the Aam Aadmi Party government which would lead to counterproductive results. In my opinion, Odd-Even formula can be deemed as a successful stint for the most part, but for it to be considered a precedent for the future, we need to sort out the innumerous other considerations that come with it.

From the perspective of an ordinary Dilliwallah, I think the Odd-Even formula has managed to achieve three things; one, it has patently reduced the traffic in the city with the time taken to travel between two spots being almost reduced by half; two, it has managed to invoke a sense of responsibility amongst Delhi citizens, with many of them using cabs and some even car pooling to move around the city; and three, although there isn’t complete consensus on it but it is suffice to say that the pollution levels in the city during the prescribed period have come down, albeit marginally.

That being said, the Odd-Even formula has not been implemented without its share of problems. Although, the time taken to commute may have reduced, that is largely because half the people have been forced to remain confined to their homes for half the week. Although, cabs and car pooling may have surged, the most important transport systems in Delhi i.e. Metro and DTC buses remain overcrowded as ever, perhaps even more so due to the present scheme. The people have been largely inconvenienced and while some might say that it is worth the sacrifice, I would argue it’s not, because the discomfort one would have to face on a daily basis if this scheme is continued may ultimately end up altering the very way of life in the city and not necessarily in a good way.

It is unlikely that the Odd-Even scheme would be extended beyond January 15th’16, but once it ends, the Delhi Government should forget about the underlying issue entirely. It should strenuously mull, in consultation with the centre, schemes to overhaul the transport system in the city by way of various capacity building programmes through increased public expenditure, look out for alternative sources of energy that may be suitable and in essence, design policy which serves the purpose of curbing pollution without massively discomforting the public. We can only hope the future is better.